This is actually a short proposal to my dad on extending his retirement savings by investing it.
He has two concerns, namely:
- Wanting to pass on as much wealth to the next generation
- Yet having sufficient funds to cover his retirement where required
I also have to find something hassle-free and low cost as fees would eat into the funds available.
In regards to returns, some obvious ones:
- CPF Returns must beat the 2.5% CPF OA
- Cash must beat fixed deposits and Singapore Savings Bonds
- He will work until retirement where possible so there will be some CPF contributions and income to support
- He has achieved the Full Retirement Sum in excess, which will be the cornerstone and the regular income during his retirement
- He is not interested in topping up to the Enhanced Retirement Sum
- He is not interested in topping up for the CPF Additional Monthly Payout nor the additional annuity purchase scheme
The first two companies coming into my mind would be MoneyOwl and Endowus (as I have very good experiences with both of them).
Why these companies?
Mostly because they are rather hassle free and offers some of the lowest fees in the industry. To show you how fees impact, returns even in the short run, here’s a chart:
Let's run though some of these options:
MoneyOwl
Moneyowl offers Dimensional Fund Advisors and their evidence based approach for cash and SRS.
Unfortunately, MoneyOwl do not carry CPFIS products. For cash, they have two DFA solutions that I considered:
Note as the balance shifts towards Bonds, we can see performance net of fees suffer quite a bit, compared to Endowus.
Endowus
Endowus offers Dimensional Fund Advisors and PIMCO for their cash/SRS solutions while a blend of various products inclusive of a Vanguard S&P500 ETF wrapped in a unit trust under Lion Global for CPF.
I considered 2 portfolios of each type as shown below. I ignored the Very Conservative Portfolio (CPF) as the returns are a tad on the low side and the standard deviation is almost the same as the Conservative Portfolio (CPF).
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| *Net Returns are before the Trailer Fee rebates |
For the Very Conservative Portfolio (Cash) and the Conservative Portfolio (CPF), the numbers don’t look too shabby.
The compositions of the funds below:
Conservative Portfolio (Cash)
Very Conservative Portfolio (Cash)
Measured Portfolio (CPF)
Conservative Portfolio (CPF)
Considering that he does not have a very long time horizon, yet withdrawals may not be required, Very Conservative (Cash) Portfolio and the Conservative Portfolio (CPF), seems to be a reasonably safe option.
Here is a simplified chart of the returns based on Endowus projected returns net of fees for Very Conservative (Cash) Portfolio and the Conservative Portfolio (CPF), vs leaving his funds in the OA (I excluded SSB and high yielding interest bank accounts because it is rather close in terms of returns).
To end off, I did up a withdrawal drawdown grid for a rough idea how long those funds will last. Basically, a 3% withdrawal means you will withdraw 3% of your total portfolio value at the start of each year.
If you want a better estimation, I have a calculator in the Related Posts links section below too.
Conclusion
Given the options I am familiar with, I do feel I have illustrated my idea of helping my dad in his retirement.
I am also sharing a link that he can get $10,000 advised fee free for 6 months, which is a savings of $20, the link is here.
You can click on it if you are interested as well.
What are the other solutions can we think of to extend our loved ones retirement funds yet giving upside for the next generation to have a better leg up?
Note that if you sign up using my link, I will get a small referral fee. There is no extra charge to you, in fact, you will get $10,000 advised fee free for 6 months (about $20 savings), it is not much but hey, $20 saved is $20 earned :)
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